A diversified portfolio at a low cost

28 March 2016 | Portfolio construction


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Leo Schulz: Vanguard LifeStrategy Funds have been a popular choice for investors looking for a one-stop multi-asset solution. My name is Leo Schulz. To discuss the LifeStrategy Funds I have with me Neil Cowell, head of retail sales at Vanguard Asset Management.

Neil, I think there are two sides to this story. One, how do the Funds help advisers and two, how do they help clients.

Let’s start with the first. How do the Vanguard LifeStrategy Funds help advisers?

Neil Cowell: The LifeStrategy funds support advisers in two ways. One is regulation. Advisers are now required to have a centralised investment process and outsourcing to multi-asset solutions is a simple, cost-effective way to meet this requirement.

The second, to my mind, is by far the more important reason. Outsourcing investment frees advisers to focus on the services clients really value. It is tempting to think that investment performance is the critical element in financial advice, and it is of course important. But Vanguard research shows there are other things clients value more.

Leo Schulz: Neil, unpack that a bit more for me. What is the research telling you that are the key value-adds that clients want from a financial adviser?

Neil Cowell: From a client’s point of view, it’s more about investing to achieve life goals. How can I accumulate the resources I need to retire comfortably? How can I provide myself with an income when yields are low? How can help a child or grandchild with their education?

A client will be loyal to an adviser they can trust, who understands their circumstances and helps them achieve their goals.

Leo Schulz: So, Neil, that’s an interesting precis on how the funds work for an adviser. Could you take us through how they work for the client…

Neil Cowell: That is the sixty-four thousand dollar question. And here I would like to make three points.

The first won’t surprise people who know Vanguard. It’s cost. Extensive research shows that low cost funds offer superior returns over time. In investment, you get what you don’t pay for. So straightaway, an adviser has helped his or her client by choosing a low cost fund.

The second point is diversification. Taking the Vanguard LifeStrategy 60/40 Fund as an example, it offers 25 asset classes, globally distributed across equities and bonds, including emerging markets and small cap equities. So, in our view, everything you need is in there.

The third benefit to clients is the focus on strategic asset allocation. There is a large body of academic research that shows that strategic asset allocation determines around 80% of the variance in a portfolio’s returns. Getting the asset allocation right, and maintaining the balance, helps ensure the fund stays on target and that the client meets their goals at an acceptable level of risk.  

Leo Schulz: Neil, I think you’ve given us a good insight into why the funds are popular, but I wonder if you could sum it up for us – what’s the killer point here?

Neil Cowell: The Vanguard LifeStrategy Funds support advisers in their business aims—and help clients achieve their life goals.

Leo Schulz: Neil Cowell – thank you.

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